Home equity loans: everything you need to know
There are a lot of things to consider when owning a home, one of which is financing. If you are considering applying for a loan, one of the options available to you as a homeowner is a home equity loan.
A home equity loan allows a homeowner to borrow money by leveraging the equity in the home. It is also known as the second mortgage and there are two options when taking out a home equity loan. One of them is a fixed rate loan and this one provides for a lump sum payment. The loan is repaid over a fixed period with an agreed interest rate, usually between 5 and 15 years. The interest rate and the payment rate remain the same throughout the life of the loan.
The second option when taking out a home equity loan is a home equity line of credit. This is an adjustable loan and the best way to think about it is like a credit card. As a borrower, you are approved by an agreed spending limit and the money can be withdrawn using a credit card or checks. The monthly payments are based on the interest rates and the amount of money borrowed. It is generally possible to withdraw money between 5 and 10 years, with a repayment period of 10 to 20 years, during which no more withdrawals are allowed.
When you take out a home equity loan, you are using the value of your home as cash. Interest paid on home equity loans is tax deductible, but to qualify you must use the funds to make improvements to the home. If the house you are borrowing the money from is sold, you have to pay back the money in full. You can’t get a home equity loan on a property that doesn’t belong to you.
If you are planning to apply for a home equity loan, you can use a heloc calculator. This will help you know if you have enough equity in your home to qualify for a loan and how much you can borrow. The calculator takes into account different equity requirements and makes it easy to see how the maximum line of credit you can claim could change if your home is priced below what you expect.
With that in mind, what’s the benefit of getting a home equity loan?
The biggest benefit of getting a home equity loan is providing a source of money that is accessible and usable right away. Interest rates tend to be lower than the rates available on credit cards and other types of consumer loans. So, if you are planning to apply for a credit card or a loan, especially if you are planning to use the money for renovations, a home equity loan is a better option.
However, you need to be sure that you have a reliable and stable income to repay the loan. Consider whether improving your home will add value, so if you decide to sell the property at a later date, it will cover the cost of the home equity loan.